Question

Economist Steven Landsburg praised Ebenezer Scrooge for choosing to save rather than spend his money, arguing that saving—not consumption—fuels economic growth. Others argue that spending fuels economic growth. Which argument is correct and why? (1 page, double-spaced)

* Use at lease 1 outside source to defend your position

i just need a starting on this.

Answer 1

Spending fuels economic growth.

We are all consumers. Most of the consumers spend their money for purchase of something which belongs either goods or service category. Unlike barter system which was existed before, ours is a money economy. Hence inorder to purchase whatever we want (goods / service) we need money.

Purchase of a person depends very much on the following things

i. disposable income - this is his total income minus tax.  

ii. income percapita

iii. income inequlity

iv. household debt

v. consumer expectations

When all the above conditions remaining constant the demand for goods increase. People like to purchase more items like durable goods car, washing machine, television, etc. when they do have more purchasing power. Whe people purchase more demand for goods increase, it will lead to more production. This will result more employment opportunities. In total the government will get more tax per each unit of the commodities marketed. Because of more employment opporunities each employee has to pay professional tax, which also add the income of the government.

As much as the individual purchasing  power increases, the consumer expectation also increases. This leads to increase the demand of each goods and services. Under such circumstances manufacturers encourged to produce more. But after a certain  level, the economy reaches to a situation where demand is high, and supply is not up to that level, the manfacturers forced to increase the price of the product. When price increases, it will be difficult for people to continue purchase of the products like before with their limited income. This results  an economic situation, which is called inflation.  

Saving - not consumption - fules economic gowth

On the other hand if consumers stop spending the economy will become bainkrupt. No production will take place. No export . No income for the government in the form of tax. The prices of commodities which have produced earlier will be available in the market with decreased price. This economic situation is called deflation. It will only help our economy to reach a negative growth.

Even then there are certain economic situations under which savings can make wonders:

i. When the economy is facing tough times becuase of some untoward incident like wars, pandemics, or anthing having money in the bank in the form of savings is helpful.  

ii.If the perosonal savings is high in an economy, at the national level, we can see a faster economic growth.

Hence we can conclude with the statement that Spending fuels economic growth.